Ukrainian Attacks Leading Russian Corporations to Mull Moving Out of Moscow

Ukrainian Attacks Leading Russian Corporations to Mull Moving Out of Moscow

Executive Summary:

• Ukrainian drone attacks on Moscow and the prospect of ballistic missile strikes are prompting firms to consider relocating for their own safety to regions east of the Urals and thus further from where such strikes can be launched.
• Some in Moscow and more in Russia’s regions are not opposed to such moves, in the first case because it supports Russian President Vladimir Putin’s turn toward the People’s Republic of China and in the second because it improves their situations. Most in both would prefer it to be planned rather than forced.
• The number and size of the firms involved are still small, but if Ukrainian attacks continue and intensify, their impact will grow, affecting not only Russia’s currently hyper-centralized economy but also its equally centralized political system.

Ukrainian drone attacks on Moscow have spread fears among the population. They have prompted numerous firms in the capital to consider relocating operations to regions east of the Urals, and thus farther from the Ukrainian border. These plans will only increase in number and immediacy if, as expected, Ukraine soon begins attacking the Russian capital with ballistic missiles (The Moscow Times, September 23; Svobodnaya Pressa, September 24). The impact of drone attacks and the prospect of ballistic missile strikes has now led the Russian government to acknowledge this trend and to publicly identify certain major firms that should move, highlighting its own inability to defend these facilities and the effort of the government to shift responsibility for doing so onto the firms themselves (Window on Eurasia, May 30; The Moscow Times, September 23; Regional’niye Kommentarii, September 25). Some in Moscow and more in Russia’s regions do not oppose this development, though they may be unhappy with its cause. The development of Siberia and the Far East in support of Russian President Vladimir Putin’s turn to the People’s Republic of China has some calls from Moscow. For the regions, such moves boost their economic and political power relative to the center. Most in both Moscow and the regions, however, would clearly prefer an organized transfer rather than an uncontrolled one that might lead to collapse (Svobodnaya Pressa, September 24; Regional’niye Kommentarii, September 25).

The number and size of Moscow-based firms now actively planning to move out of the capital to the regions remain relatively small. They might even decline further as Ukrainian attacks reach ever deeper into Russian territory. There can be little doubt, however, that if the drone attacks do continue and ballistic missile attacks begin, the number and size of firms now in Moscow planning to move or actually doing so will grow and perhaps quickly beyond the ability of the government to control the situation given that, in the words of one analyst, these firms are not “serfs” (Svobodnaya Pressa, September 24). If that does happen, such a development would undermine both Russia’s currently hyper-centralized economy and its equally hyper-centralized political system. It could even make plausible, if not necessarily certain, as one expert suggests about Moscow’s relationship to its regions, that “whether you like it or not, the empire is collapsing” because “Ukraine is decentralizing Russia” (Region.Expert, September 23).

Ukrainian drone attacks have spread fears among the Russian populations in areas that have been targeted. Some residents have fled to areas they believe are safer, and some firms are thinking about doing the same. That has happened in particular in areas bordering the Russian Federation, where such attacks have been going on the longest, but it is now happening in Moscow, where drone attacks have intensified. The Russian government earlier implicitly acknowledged that it is not capable of defending the facilities of many firms in Moscow and now has suggested that the management offices of major firms must plan to move if Ukraine expands its drone attacks and adds ballistic missile attacks as well (The Moscow Times, September 23; Regional’niye Kommentarii, September 25). Now, the Ministry for Economic Development has identified eight major state holdings, portions of which the ministry says it could transfer from the Moscow area to regions farther from the Ukrainian border. These include the management offices of Russian Railways, Aeroflot, Russian Post, Transneft, Rosseti, Rosneft, Inter RAO, and Zarubezhneft, which together have some 250 offices in the Russian capital and employ 270,000 people. In making this announcement, the ministry added that such moves would save money because rents in the regions are lower. The Russian government, however, would not have taken such a radical step away from centralization if it were not for fears that Ukrainian drones and ballistic missiles would hit these plants and offices and disorder the country as a result.

In covering this announcement, which garnered Putin’s immediate and repeated support, Svobodnaya Pressa journalist Irina Mishina makes it clear that protection against Ukrainian attacks is the primary motivation (see EDM, September 8). She writes that these moves mean “the old dream of Sergei Shoigu [who proposed moving the capital from Moscow to Yekaterinburg] has begun to be realized” (Svobodnaya Pressa, September 24). The journalist says this effort may fall short or even prove too little, too late. Firms leaving their customary locations in the capital will find it difficult to start over in places with little infrastructure and where workers will not want to go unless compelled. Consequently, she continues, the economy will take a hit, and so too will the political system. Nonetheless, in the current environment, the Russian government appears to have had little choice but to make such a decision, even though some firms will resist moving even if the government tells them to. In contrast, others will move more quickly than the Russian authorities can cope with. Other analysts make similar points, and a few make even more dire predictions about what any movement of firms to Siberia might entail (Window on Eurasia, August 19; Regional’niye Kommentarii, September 24, 25).

Despite these objections, many regions would welcome Moscow firms moving into their territories. Such arrivals would allow them to collect more taxes and act more independently of the center than they can now. Consequently, regional leaders and specialists are focusing on how to make their regions more attractive than others to attract what are now Moscow businesses, triggering a kind of bidding war that firms in the Russian capital will certainly exploit before they actually make any move (Regional’niye Kommentarii, September 24). The Russian government will naturally try to rein in such political entrepreneurship, but it will face difficulties now that Moscow has suggested that major firms must be ready to relocate.   

This possibility opens a new chapter in Moscow’s relations with Russia’s federal subjects. Even those that now appear totally controlled by the center will act in ways that may prove threatening to the center’s assumptions about who makes the decisions about what. Suggestions that this represents an immediate step toward the dismantling of the Muscovite empire are almost certainly overblown. The very fact that such things seem at all plausible and can even be said, however, shows that the world has changed not just because of Ukraine’s successes but because of Russia’s past failures involving not only its military forces but its management of the more distant parts of its empire.